The Dow Chemical Company

The Dow Chemical — Q2 2012 Earnings Presentation

50 slides from The Dow Chemical's earnings presentation, Jul 26, 2012

  1. Slide 1: Q2 2012 Earnings Conference Call

    Q2 2012 Earnings Conference Call The Dow Chemical Company July 26, 2012 January 4, 2012

  2. Slide 2: SEC Disclosure Rules

    SEC Disclosure Rules Some of our comments today include statements about our expectations for the future. Those expectations involve risks and uncertainties. Dow cannot guarantee the accuracy of any forecasts or estimates, and we do not plan to update any forward-looking statements if our expectatio

  3. Slide 3: Agenda

    Agenda  2Q 2012 Overview  Financial Update  Macroeconomic View  Dow’s Unique Value Drivers − Operating and Capital Efficiency − Feedstock Advantage − Integrated Portfolio − Innovation Agenda  Focus on Execution: 2H12 Priorities 3

  4. Slide 4: 2Q 2012 Results

    2Q 2012 Results  Earnings per share of $0.55  Sales of $14.5B, adjusted sales down 6% – Volume down 1 percent; price decreased 5 percent – Broad-based declines due to global slowdown, cautious buying sentiment – Negative currency impact contributed >45% of sales decline – Purchased feedstock and e

  5. Slide 5: Agenda

    Agenda  2Q 2012 Overview  Financial Update  Macroeconomic View  Dow’s Unique Value Drivers − Operating and Capital Efficiency − Feedstock Advantage − Integrated Portfolio − Innovation Agenda  Focus on Execution: 2H12 Priorities 5

  6. Slide 6: 2Q12 Financial Performance

    2Q12 Financial Performance Dollars in millions, except per share amounts 2Q12 2Q11 Net Sales $14,513 $16,046 Adjusted Sales $14,513 $15,459 Adjusted Volume change in percent -1% Adjusted Price change in percent -5% Adjusted EBITDA $1,960 $2,342 Net Income Available for Common Stockholders $649 $982

  7. Slide 7: Drivers of 2Q12 Financial Performance

    Drivers of 2Q12 Financial Performance Key Drivers in the Quarter $0.85  Lower feedstock costs offset by declining prices, softer demand and currency headwinds $0.55  High planned turnarounds drive up costs, reduce operating rates and impact equity earnings  Effective tax rate higher due to geogra

  8. Slide 8: Year-Over-Year Volume Trends

    Year-Over-Year Volume Trends Electronic &  Adjusted volume down 1% Functional Materials -2% Coatings & --- Infrastructure Solutions  Reflects economic Agricultural Sciences 5% volatility, cautious buying 10% sentiment Performance Materials -5%  Feedstocks & Energy, Performance Plastics -9% 3% Per

  9. Slide 9: Year-Over-Year Price Trends

    Year-Over-Year Price Trends Electronic & Functional Materials -2%  Price down 5% Coatings & -6% Infrastructure Solutions  >$400MM impact due to Agricultural Sciences 5% 2% currency Performance Materials -6% Performance Plastics -9%  Declines in all Feedstocks & Energy geographic areas and -3% mos

  10. Slide 10: Operating Segment View

    Operating Segment View Electronic and Functional Materials  Sales down 4%; volume and price both declined 2%  Dow Electronic Materials sales declined across most businesses; however demand gains were reported in Semiconductor Technologies due to improved foundry utilization rates  Functional Mate

  11. Slide 11: Operating Segment View

    Operating Segment View Agricultural Sciences  Record second quarter sales of $1.7 billion, up 12 percent  Volume rose 10%; sales and volume grew in most geographic areas  Crop Protection demand up 8%; sales of new products up 17%  Seeds, Traits and Oils posted sales gains of >30%  Continued pen

  12. Slide 12: Operating Segment View

    Operating Segment View Performance Plastics  Sales down 6%; volume up 3%, price down 9%  Sales in Performance Packaging declined as a result of lower pricing in all geographies  Dow Electrical and Telecommunications increased sales, with double- digit sales and volume gains in Asia Pacific  Dow

  13. Slide 13: Additional Financial Highlights

    Additional Financial Highlights  Focus on working capital* − Improved ~$1.6B YTD  Cash from operations improved ~$700MM vs. SQLY − YTD increased ~$800MM versus the year-ago period  Net debt to total capital of 40.4% − Down 120 basis points vs. 2Q11 *Accounts receivable, inventory and accounts pay

  14. Slide 14: Agenda

    Agenda  2Q 2012 Overview  Financial Update  Macroeconomic View  Dow’s Unique Value Drivers − Operating and Capital Efficiency − Feedstock Advantage − Integrated Portfolio − Innovation Agenda  Focus on Execution: 2H12 Priorities 14

  15. Slide 15: Macroeconomic Outlook

    Macroeconomic Outlook Continued Demand Growth Developed Emerging Developed Emerging Developed Emerging Flat or Insignificant Middle East / Africa Middle East / Africa Middle East / Africa Demand Growth (+ or -) Western Europe Western Europe Western Europe Eastern Europe Eastern Europe Eastern Europe

  16. Slide 16: Macroeconomic Outlook

    Macroeconomic Outlook  W. Europe recessionary conditions continue, triggering wide- ranging global implications  China’s economy continues to slow – Reaching lowest growth rate since 2009 – Slower growth environment likely to linger until government policies shift to domestic growth  United State

  17. Slide 17: Agenda

    Agenda  2Q 2012 Overview  Financial Update  Macroeconomic View  Dow’s Unique Value Drivers − Operating and Capital Efficiency − Feedstock Advantage − Integrated Portfolio − Innovation Agenda  Focus on Execution: 2H12 Priorities 17

  18. Slide 18: Structural Cost Reduction Programs Gaining Momentum

    Structural Cost Reduction Programs Gaining Momentum $2.5B Identified Accelerating Actions $1B Additional  Increasing target from $1B to poised to $1.5B pull as needed NEW  Nearly $600MM delivered YTD $1.5B  Additional $250MM announced Expanded (April 2012) 2Q12 $1B  Reduced Capex, tailoring grow

  19. Slide 19: Strong Cash Flow Generation and Clear Uses of Cash

    Strong Cash Flow Generation and Clear Uses of Cash  Shareholder Remuneration: Raised dividend 28%  Deleveraging: Reduced ~$1B of debt in 1H12  Invest for Growth: Prudent investments for organic growth  K-Dow Arbitration Award: Will accelerate priorities for uses of cash Cash Flow from Operations

  20. Slide 20: Dow's Formidable Feedstock Advantage

    Dow’s Formidable Feedstock Advantage 1,650 Key Drivers of Advantage Ethylene Cash Cost Curve 2012 1,450  Dow JV Middle East – Feedstock contracts 1,250 – Breadth of derivatives 1,050  Dow JV Asia Pacific USD/Metric Ton 850 – Scale & age of assets Latin America 650 North America  Dow Europe Dow NA

  21. Slide 21: Dow's Feedstock Flexibility Leads the Industry

    Dow’s Feedstock Flexibility Leads the Industry North America Europe 100% 100% Naphtha Naphtha Naphtha Naphtha Propane 75% Propane 75% 50% 50% Condensate 25% 25% Ethane Ethane Condensate 0% 0% Propane Propane Dow Industry Dow Industry Flexibility advantage adds up to $250MM additional EBITDA per year

  22. Slide 22: Clear Drivers to Deliver Shareholder Value

    Clear Drivers to Deliver Shareholder Value Operating &  Focus on productivity (output/unit), gross margin growth, reliability as we scale Capital  Driving accountability, greater employee engagement, motivation Efficiency  Targeting to deliver $1B in cash from interventions in 2012  Largest, mos

  23. Slide 23: Dow's Portfolio Can Pivot to Optimize Returns

    Dow’s Portfolio Can Pivot to Optimize Returns Shorter-Term Integration Value Drivers Ability to arbitrage within and across multiple value Optimization of chains price and volume Geographic Breadth Exposure to fastest growing markets; Investments address growing middle-class Energy Longer-Term Indus

  24. Slide 24: Monetizing the Innovation Pipeline

    Monetizing the Innovation Pipeline ENERGY Risk Adjusted NPV by Stage ($ billions) 6.8 CONSUMER & LIFESTYLE 3.6 AGRICULTURAL 2.8 SOLUTIONS INFRASTRUCTURE & TRANSPORTATION Exploration Development Implementation Innovation to deliver $500MM EBITDA by year-end 2012; ~$2B expected from innovation by 2015

  25. Slide 25: Addressing Value Chain Needs With World-Class IP

    Addressing Value Chain Needs With World-Class IP Next-gen of BETAMATE™ brand family $700MM Market Opportunity  Provides durable and superior bonding for lightweight structures  Builds on Dow’s market leadership in automotive crash durable adhesives  BETAMATE™ Flex commercialized in 2Q with Chines

  26. Slide 26: Refuge Advanced Powered by SmartStax Accelerates Gains in Corn

    Refuge Advanced ® Powered by SmartStax™ Accelerates Gains in Corn  Performance and convenience of Refuge Advanced® single bag solution fuels growth in corn  Best solution for insect resistance management, convenience and compliance, and yield ― Multiple modes of action combat insect resistance ― T

  27. Slide 27: Clear Drivers to Deliver Shareholder Value

    Clear Drivers to Deliver Shareholder Value  Strategically aligned with key end-markets and megatrends Integrated  Driving growth synergies across divisions, particularly in Performance Materials and Performance Plastics Portfolio  Expanding presence in emerging geographies to capture growth  Inn

  28. Slide 28: Agenda

    Agenda  2Q 2012 Overview  Financial Update  Macroeconomic View  Dow’s Unique Value Drivers − Operating and Capital Efficiency − Feedstock Advantage − Integrated Portfolio − Innovation Agenda  Focus on Execution: 2H12 Priorities 28

  29. Slide 29: Dow Actions to Deliver Growth Over Next 12 Months

    Dow Actions to Deliver Growth Over Next 12 Months  Accelerate actions to improve cost and productivity − Expanding target to $1.5B − Further actions underway  Closely manage price / volume  Maximize low-cost, flexible feedstock advantage  Leverage diverse portfolio to take advantage of attractiv

  30. Slide 30: Dow Investor Forum 2012

    Dow Investor Forum 2012 New York, NY • October 3, 2012 • Updates on key near-term milestones • Insights into next level of earnings • For more information: ir@dow.com 30

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    31

  32. Slide 32: Appendix

     Appendix 32

  33. Slide 33: Electronic & Functional Materials

    Electronic & Functional Materials Dollars in millions 2Q12 2Q11 Sales $1,151 $1,197 Price (2)% Volume (2)% EBITDA $287 $287 Equity earnings (included in EBITDA) $35 $25 2Q12 Sales 2Q12 Trends vs. 2Q11 Dow Electronic Sales Price Volume Materials Dow Electronic Materials    Functional Materials  

  34. Slide 34: Coatings & Infrastructure Solutions

    Coatings & Infrastructure Solutions Dollars in millions 2Q12 2Q11 Sales $1,888 $2,002 Price (6)% Volume - EBITDA $337 $368 Equity earnings (included in EBITDA) $45 $79 2Q12 Sales 2Q12 Trends Performance Dow Building & vs. 2Q11 Monomers Construction Sales Price Volume Dow Building & Construction  

  35. Slide 35: Agricultural Sciences

    Agricultural Sciences Dollars in millions 2Q12 2Q11 Sales $1,676 $1,500 Price 2% Volume 10% EBITDA $307 $287 Equity losses (included in EBITDA) $(1) - 2Q12 Trends vs. 2Q11 Sales Price Volume Dow AgroSciences    Crop Protection  -  Seeds, Traits and Oils    35

  36. Slide 36: Performance Materials

    Performance Materials Dollars in millions 2Q12 2Q11 Sales $3,369 $3,858 Price (6)% Volume (7)% Volume (excluding divestitures) (5)% EBITDA $350 $481 Equity losses (included in EBITDA) $(20) $(4) 2Q12 Trends vs. 2Q11 Sales Price Volume Amines   - 2Q12 Sales Chlorinated Organics    Dow Automotive

  37. Slide 37: Performance Plastics

    Performance Plastics Dollars in millions 2Q12 2Q11 Sales $3,711 $4,441 Price (7)% Volume (9)% Volume (excluding divestitures) 3% EBITDA $760 $958 Equity earnings (included in EBITDA) $39 $59 2Q12 Sales 2Q12 Trends Dow Elastomers vs. 2Q11 Dow Electrical & Telecommunications Sales Price Volume Dow Hyg

  38. Slide 38: Feedstocks & Energy

    Feedstocks & Energy Dollars in millions 2Q12 2Q11 Sales $2,657 $2,963 Price (3)% Volume (7)% EBITDA $134 $254 Equity earnings (included in EBITDA) $52 $138 2Q12 Trends vs. 2Q11 2Q12 Sales Chlor- Sales Price Volume Alkali/Chlor- Chlor-Alkali/Chlor-Vinyl    Vinyl Energy    EO/EG Energy Ethylene

  39. Slide 39: Reconciliation of Non-GAAP Financial Measures

    Reconciliation of Non-GAAP Financial Measures Three Months Ended Dollars in millions 06/30/12 06/30/11 EBITDA $1,960 $2,332 - Depreciation and amortization 674 697 + Interest income 10 10 - Interest expense and amortization of debt discount 312 328 Income Before Income Taxes $984 $1,317 - Provision

  40. Slide 40: Supplemental Information- 2Q

    Supplemental Information- 2Q Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Three Months Ended Three Months Ended Three Months Ended 06/30/2012 06/30/2011 06/30/2012 06/30/2011 06/30/2012 06/30/2011 Adjusted to exc

  41. Slide 41: Certain Items Affecting Results

    Certain Items Affecting Results Certain items decreasing EBITDA by operating segment In millions Three Months Ended 06/30/12 06/30/11 Electronic and Functional Materials - - Coatings and Infrastructure Solutions - - Agricultural Sciences - - Performance Materials - - Performance Plastics - - Feedsto

  42. Slide 42: Reconciliation of Non-GAAP Financial Measures

    Reconciliation of Non-GAAP Financial Measures Six Months Ended Dollars in millions 06/30/12 06/30/11 EBITDA $3,668 $4,274 - Depreciation and amortization 1,353 1,428 + Interest income 16 17 - Interest expense and amortization of debt discount 641 705 Income Before Income Taxes $1,690 $2,158 - Provis

  43. Slide 43: Supplemental Information

    Supplemental Information Results for the six-month period ended June 30, 2012 were unfavorably impacted by two items: • Pretax restructuring charges of $357 million. On March 27, 2012, the Company’s Board of Directors approved a restructuring plan as part of a series of actions to optimize its portf

  44. Slide 44: Supplemental Information- YTD

    Supplemental Information- YTD Certain Items Impacting Results In millions, except per share amounts (unaudited) Pretax Impact (1) Net Income (2) EPS - Diluted (3) Six Months Ended Six Months Ended Six Months Ended 06/30/2012 06/30/2011 06/30/2012 06/30/2011 06/30/2012 06/30/2011 Adjusted to exclude

  45. Slide 45: Certain Items Affecting Results

    Certain Items Affecting Results Certain items decreasing EBITDA by operating segment In millions Six Months Ended 06/30/12 06/30/11 Electronic and Functional Materials $(17) - Coatings and Infrastructure Solutions (41) - Agricultural Sciences - - Performance Materials (186) - Performance Plastics -

  46. Slide 46: Emerging Geographies

    Emerging Geographies Dow defines emerging geographies as the following: Eastern Europe, including Russia Asia Pacific, excluding Japan, Australia and New Zealand Latin America India Middle East Africa 46

  47. Slide 47: Principal Joint Ventures

    Principal Joint Ventures Although Dow participates in many joint ventures, the most significant joint ventures from a financial perspective are: Dow Corning Corporation EQUATE Petrochemical Company K.S.C. The Kuwait Olefins Company K.S.C. MEGlobal The SCG-Dow Group 47

  48. Slide 48: Preliminary Results for Principal Joint Ventures

    Preliminary Results for Principal Joint Ventures Principal Joint Ventures - Total Dow Proportionate Share Dollars in millions (unaudited) 2Q12 2Q11 Dollars in millions (unaudited) 2Q12 2Q11 Sales $3,578 $3,988 Sales $1,735 $1,945 Adjusted Sales(1) $2,745 $3,099 Adjusted Sales(1) $1,352 $1,532 EBITDA

  49. Slide 49: Reconciliation of Equity Earnings

    Reconciliation of Equity Earnings 2002 2003 2004 2005 2006 2007 2008 2009 Quarterly Average Equity Earnings excluding certain items $10 $81 $231 $241 $240 $281 $197 $181 Equity Earnings excluding certain items, for the year 40 322 923 964 959 1,122 787 724 Certain items: Dow Corning Restructuring -

  50. Slide 50: Global Operating Rates as a Percent of Capacity

    Global Operating Rates as a Percent of Capacity Year QTR YTD 2009 1Q 68% 68% 2Q 75% 71% 3Q 78% 74% 4Q 76% 74% 2010 1Q 83% 83% 2Q 80% 82% 3Q 86% 83% 4Q 81% 83% 2011 1Q 83% 83% 2Q 84% 83% 3Q 83% 83% 4Q 72% 80% 2012 1Q 83% 83% 2Q 78% 81% 50

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